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Taxed tips: Another NH revenue grab

The Department of Revenue Administration is asserting a peculiar and unjustified authority to tax businesses on compensation other people pay to their employees. Some state senators are rightly trying to correct this. Meanwhile, the governor is unhelpful.

The state primarily taxes businesses in two ways: through the business enterprise tax and the business profits tax. Part of the BET is a tax of .75 percent collected on compensation paid to employees. Tips from customers obviously are not part of the compensation offered by employers. Yet the DRA asserts that businesses must include tips when calculating the BET on employee compensation.

This type of misapplication of the law is a large reason why trade groups such as the New Hampshire Lodging and Restaurant Association (NHLRA) exist. The NHLRA has brought the issue to the Legislature, and some senators are trying to pass legislation to clarify that the BET does not apply to tips.

The DRA says that the tip inclusion always was anticipated by the law, but the law was vague so the point was clarified in 2008. The catch is that it was not consistently enforced. The DRA has begun trying to enforce it this year.

It is doubtful that tips were meant to be included in the BET calculations all along. It is bad policy. It taxes businesses for money that in most cases never went through their accounts. The law needs to be clarified so that businesses do not have to pay taxes on other people’s money.

That is pretty easy to see. Gov. Hassan, however, is leaving her options open. “We want to ensure that all taxpayers are being treated fairly,” her spokesman told this newspaper yesterday. Will she let this policy stand so it can bring in more revenue? Maybe, and that should trouble every restaurant owner in the state.